Beneficiary Designations Under the SECURE Act Affects Hoosiers

The SECURE Act, which became effective in January of 2020, affects Hoosiers and other retirement plan holders around the country who now need to review their estate plans…

SECURE Act Affects Hoosiers

The reviews are necessary to decide if beneficiary designations should be changed or updated and to determine whether wills or trusts need to be revised if they previously contained a trust to hold retirement plan funds.

The Changes

Prior to the SECURE Act, inherited retirement plans could essentially be distributed over the life expectancy of the designated beneficiary or “stretched.” That stretch continues to apply to retirement plans in which the owner of the plan died prior to January of 2020. However, for persons dying later with the passage of the SECURE Act, inherited funds must be distributed within 10 years except for very few exceptions.

This loss of the “stretch” and forced distribution over a mere 10-year period will cause increased income taxes, a loss in certain instances of creditor protection and other issues. Thus, a review of your existing beneficiary designation and estate plan is imperative.

10-Year Rule Exceptions

The exceptions to the 10-year rule include:

a. a surviving spouse
b. a minor child
c. a disabled or chronically ill individual
d. an individual not more than 10 years younger than the deceased plan holder

In other words, the surviving spouse can continue to exercise the maximum flexibility and treat the retirement plan as his or her own account, roll it over into his or her IRA, etc. If the beneficiary is a minor child, distributions while the child is under age 18 can be based on life expectancy but once the child reaches 18, the 10-year rule begins to apply. Disabled or chronically ill individuals who meet specified tests under the Internal Revenue Code may be able to stretch the distribution over their lifetime as long as they remain chronically ill or disabled.

Important Tip

Finally, if the beneficiary is less than 10 years younger than the deceased plan owner, the life expectancy of the beneficiary can be used rather than the 10-year rule.

As you can determine from the above materials, the changes on the distributions for retirement assets that are inherited are significant. Taking those into account with your estate plan and beneficiary designations can have a significant and often detrimental impact. Thus, everyone with retirement assets should take the time to review those designations in consideration with the changes to the SECURE Act and also your will and estate plan and contact an attorney to assist you in considering any changes which may be necessary or advisable.

Need More Info on Estate Planning?

Need more information on this subject? Contact Altman, Poindexter & Wyatt, LLC to discuss how SECURE Act affects your estate planning.

Beneficiary Designations Under the SECURE Act Affects Hoosiers